Israel Advocacy and the IRS

President Obama's antipathy for Israel was evident before his election and predictable considering the anti-Israel animus of the radical political culture that nurtured him. Thus, it surprised many observers that Jewish voters would forsake their concern for Israel and pledge their political troth to his electoral success. But there should have been no surprise given that most are registered Democrats who believe in social and economic engineering through interventionist government regulation and secular statism.

Liberal votersâ€”whether Jewish or Gentileâ€”favor expanding the power of government to enforce partisan ideals and restructure society, even at the risk of sacrificing individual rights and liberties. Despite the buyers' remorse expressed by many Jewish Democrats after witnessing Mr. Obama's shoddy and disrespectful treatment of Israel, they have failed to recognize that the sword of big government, which they heartily endorsed, may now be undercutting pro-Israel advocacy. And nowhere is this more suspect than in the apparent use of the Internal Revenue Service to advance the Obama Middle East agenda.

IRS Boundaries

Recently, a new Zionist group called Z Street filed an application with the IRS seeking 501(c) (3) tax-exempt status. Z Street is a nonprofit, educational organization devoted to educating the public about the history of the Middle East, the existence of Israel as a Jewish state, and Israel's right to refuse to negotiate with or make concessions to terrorists. Its philosophy is grounded in the Revisionist Zionism of Zev Jabotinsky and it is similar in spirit to the old Bergson Group, active during the Second World War. Its mandate and mission are set forth in its charter, which states, among other things, the following:

Z STREET maintains that Jews have the right to live anywhere in the world, including, and especially, within all parts of Israel.

Z STREET is dedicated to maintaining and strengthening the Jewish State of Israel and firmly believes that there can be no compromises or agreements with, and no concessions to, any Terrorist Entity or any individual Terrorists.

Accordingly, Z Street disagrees with the Obama administration's Middle East policies and with Jewish left-wing groups who promote a skewed vision that validates the revisionist Palestinian narrative and endorses the appeasement of those dedicated to the destruction of Israel as a Jewish state.

Z Street filed its 501(c) (3) application back in December 2009, having satisfied all the requirements necessary for approval under the IRS regulations. Nevertheless, according to official documents filed by Z Street in a lawsuit against the IRS over the matter, an agency spokesperson stated that Z Street's application was being delayed, and could be denied, because of a special IRS policy regarding organizations connected with Israel. The spokesperson further stated that the applications of many such Israel-related organizations had been assigned to "a special unit in the D.C. office to determine whether the organization's activities contradict the Administration's public policies."

This disclosureâ€”if in fact trueâ€”adds a layer of scrutiny that is neither required by the relevant IRS and Treasury regulations, nor applicable to other organizations and, consequently, demonstrates a brazen and unlawful abuse of governmental authority. Upon receiving this information, Z Street filed the aforementioned lawsuit seeking declaratory relief and damages in the United States District Court for the Eastern District of Pennsylvania.

Going Beyond the Code?

IRS Regulation Section 1.501(c)(3)-1(d)(2) defines the term "charitable" to include the "advancement of education," while Section 1.501(c)(3)-1(d)(3)(i) of the Regulations defines "education" to include: "(a) the instruction or training of the individual for the purpose of improving or developing his capabilities; or (b) the instruction of the public on subjects useful to the individual and beneficial to the community." Organizations that engage in informative public activities including forums, panel discussions, and lectures are deemed to be educational under the Code. Such groups can claim tax-exempt status even if they espouse controversial viewpoints, as long as their activities are for the purpose of influencing public opinion and they provide the facts upon which their positions are based and from which members of the public can draw their own conclusions. From its inception, Z Street has promoted and engaged in precisely these kinds of activities.

The test for determining whether a nonprofit group is educational, and thus eligible for tax exemption, is set forth in Revenue Procedure 86-43, 1986-2 C.B. 729, which looks at the methodology used by applicants to develop and present their views. An organization can qualify by showing: "(a) a factual foundation for the viewpoint being advocated; or (b) a developed presentation of the relevant facts that would materially aid a listener or reader in a learning process." In that Z Street's methodology satisfies these standards, the approval of its application for exemption should have been academic. The regulations provide no room to consider whether or not an organization's views diverge from the Obama administration's policiesâ€”or any administration's policies for that matterâ€”which are political in nature and do not constitute the "law of the land."

If true, the hijacking of the IRS approval process to delay or deny tax-exempt status to organizations that support Israel constitutes an assault on the First Amendment because it impermissibly penalizes the exercise of protected speech. There is no requirement that applicants must agree with a particular administration's partisan positions or transient policies. The delaying of tax-exempt status from private groups that express dissenting viewpoints would therefore be nothing more than a transparent attempt to punish such organizations by inhibiting their ability to raise funds through deductible contributions, thereby restricting their ability to finance educational and promotional activities. The clear intent would be to silence dissent.

Obama's New Twist

The strategic abuse of IRS authority for political reasons is not a new phenomenon. On the contrary, it has been employed by Democrats as well as Republicans to punish ideological nonconformity since the institution of the income tax. During the Second World War, for example, the American Jewish Committee (AJC) requested the IRS to audit the Bergson Group's finances because of its outspoken criticism of Roosevelt's anemic response to the Holocaust and its support for the Irgun. The Bergson Groupâ€”unlike Rabbi Stephen Wise, the AJC, and other Jewish acolytes of Franklin Rooseveltâ€”was dedicated to publicizing the Holocaust as it unfolded and exposing FDR's refusal to take meaningful steps to prevent the slaughter. At the administration's request, Rabbi Wise, the AJC, and others attempted to discredit the Bergson Group and its supporters and derail their advocacy efforts.

Punitive though these kinds of abuses may have been, they appear to have been singular measuresâ€”often instigated by private citizensâ€”taken in response to specific conduct with which the administration in power disagreed. Such partisan measures were certainly intended to punish the exercise of protected speech, but they were not enforced as part of a "special unit" created for the sole purpose of "determin[ing] whether the organization's activities contradict the Administration's public policies."

If in fact such a special unit exists within the IRS, the dilatory handling of Z Street's application would appear to be a concerted and politically motivated abuse of power. The government's clear intent would be to rebuke groups "connected to Israel" for adopting positions that acknowledge the sovereignty of a reliable ally of the United States, but which contradict administration policies that undercut the safety and security of that same ally.

It may or may not be coincidental that the disclosure of the existence of a "special unit" occurred not long after the left-wing organization J Street announced its campaign to lobby the Treasury Department to revoke the tax-exempt status of Jewish charities that support religious and cultural institutions in Judea and Samaria.

Religious Preference?

The treatment of Z Street stands in stark contrast to the respect accorded to the Council on American Islamic Relations (CAIR), an organization described as an "unindicted co-conspirator" during the Holy Land Foundation prosecution. As has been widely reported, the Holy Land Foundation was a Muslim charity operating within the United States, which was indicted along with several individual defendants for inter alia raising and distributing funds to Hamas, a designated foreign terrorist organization. Documents released by the Department of Justice showed that the Foundation had ties to the Muslim Brotherhood and essentially served as a fund-raising conduit for Hamas. Its assets were frozen and seized, and it was prosecuted over the course of two trials, during which CAIR was included on a "list of unindicted co-conspirators and/or joint venturers" attached to the government's pretrial brief. The first proceeding ended in a mistrial, but the second ended in convictions for the Foundation and the individual defendants on multiple counts.

While CAIR denied this characterization and sought to have its name removed from the list, in an appeal by the third party North American Islamic Trust (NAIT), the court ruled that the government should have filed the "list of unindicted co-conspirators and/or joint venturers" under seal, but refused to issue an order restating that NAIT's rights were violated or that its name be expunged from the document. CAIR filed an amicus brief but was not a party to the appeal.

Despite CAIR's apparent association with the Holy Land Foundation, the organization never lost its 501(c) (3) tax-exempt status and was never flagged for investigation by the current administration, which entered office a mere two months after the second trial's end. Moreover, the organization has a friendly history with the Obama White House, to which it reportedly has had open access since the early days of Mr. Obama's presidency.

In light of the administration's cordial relations with CAIR, the disparate treatment accorded Z Street by the IRS is most curious indeed. It seems ironic that the administration would show deference to an organization that was associated with a group found to have channeled funds to those opposed to American interests and values, while at the same time attempt to obstruct an organization that supports the sovereign rights of Israelâ€”a stable and reliable ally that promotes western democratic values. And the White House has done so by apparently subverting an agency approval process over which it should have no control.

What's Next?

If the Obama administration is requiring that IRS applications of Israel-related organization be vetted for conformity with the administration's Middle East policies, the Obama White House has co-opted the agency's authority in a way that exceeds its original regulatory mandate.

Such use of the IRS would not be an aberration, but would rather foreshadow the administration's intention to expand the agency's power to enforce policies that are designed to expand the role of government into the private sector, most notably with respect to implementation of the Obama health care plan.

Critics of government-controlled health care are concerned that it will tie up a disproportionate share of the national budget, create dramatic tax consequences, and intrude into the personal decision-making process regarding insurance and treatment options. It also will require the greatest expansion of the IRS in 65 years, fueled by the creation of perhaps 16,500 positions to collect new taxes, monitor the purchase of insurance coverage, and mete out penalties for noncompliance. Regulatory changes exceeding the original enabling legislation will be needed to legalize the agency's use as a health care monitoring and enforcement agency. Although skeptics might argue that health care and Middle East policy are separate and distinct arenas having nothing to do with each other, the administration's apparent use or abuse of the taxing authority to effect social change and discourage dissent comes from the same philosophical place.

Although Jewish liberals may support the president's health care boondoggle, one must wonder whether they understand the connection between the expansion of government to effect ideologically driven legislation and the abuse of governmental authority to penalize opposing viewpoints. If Z Street's claim proves true, the partisan abuse of IRS authority to curtail pro-Israel advocacy is simply another side of the same impulse that sees expanded government as the appropriate engine for social change.

Matthew M. Hausman is a trial attorney, writer, and former journalist.

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